Guangzhou RF Properties And RF Properties (HK) Liquidity Scores Revised To Ratings Affirmed

Stocks and Financial Services Press Releases Friday April 21, 2017 18:19
HONG KONG--21 Apr--S&P Global Ratings

HONG KONG (S&P Global Ratings) April 21, 2017--S&P Global Ratings today affirmed its 'B+' long-term corporate credit rating and 'cnBB' long-term Greater China regional scale rating on China-based developer Guangzhou R&F Properties Co. Ltd. and R&F Properties (HK) Co. Ltd. The outlooks for both companies remain stable.

S&P Global Ratings revised its assessment of Guangzhou R&F's liquidity to adequate from less than adequate because the company's increased cash balance has significantly strengthened its liquidity sources. At the same time, we also revised our assessment of R&F HK's liquidity to adequate from less than adequate. As the parent's offshore financing platform, R&F HK's liquidity mainly mirrors that of Guangzhou R&F. None of the ratings on Guangzhou R&F and R&F HK were affected by the assessment change.

We estimate that Guangzhou R&F's liquidity sources to be over 1.2x its liquidity uses for the next 12 months. The company's cash balance rose by over 110% to Chinese renminbi (RMB46) billion in 2016. The significant increase was because Guangzhou R&F issued RMB42.5 billion in onshore bonds during the year. The company's contracted sales were in line with our expectations and the cash collection rate was good in 2016 due to favorable market conditions, and also contributed positively. In addition, the onshore bond issuances have lengthened Guangzhou R&F's debt maturities, which are now more evenly spread out over the next few years. That has also helped to even out R&F's liquidity uses.

Our liquidity assessment also suggests that Guangzhou R&F has a reasonable ability to absorb high-impact, and low-probability events. It also maintains good relationship with banks, as shown by its track record of having good access to bank credits and capital market. R&F has a generally satisfactory standing in credit markets, as shown by a low-cost new bond that it issued recently.

Principal liquidity sources include:

Cash and restricted cash of RMB45.9 billion as of Dec. 31, 2016;Cash receipts from sales and recurrent income of RMB57.1 billion in 2017;A new U.S. dollar bond issuance of around RMB5.5 billion in the first three months of 2017.

Principal liquidity uses include: Construction cost of RMB24 billion in 2017;Estimated committed land premiums of RMB8.0 billion as of Dec. 31, 2016;Debt maturities in one year of RMB33.7 billion as of Dec. 31, 2016;Selling, general, and administrative expenses, taxes, and interest payments of RMB20.4 billion in 2017;Committed land premium payment of RMB8 billion in 2016;Declared cash dividend payment and other payment of RMB8 billion.We affirmed the rating on Guangzhou R&F because we believe the company's leverage will remain stable over the next 12 months following a moderate deterioration in 2016 due to the higher-than-expected total debt level.

We expect the company to use its ample cash balance to pay down maturing high-cost financing. Hence, its total debt level should increase at a slower pace over the next two years, in our view.
Guangzhou R&F's established market position, its satisfactory scale of operations, and above-peer profitability also support the current rating.
The stable outlook reflects our expectation that Guangzhou R&F will maintain steady growth in property sales and above-average profit margins over the next 12 months.
We also expect the company's leverage to remain stable despite more active land acquisitions, and that liquidity will stay adequate over the next 12 months.

We may lower the rating if: (1) the company deviates from disciplined growth management and pursues debt-funded expansion more aggressively than we anticipate, such that its EBITDA interest coverage falls below 1.5x or the ratio of total debt to EBITDA continues to rise without any sign of improvement; or (2) R&F's liquidity substantially deteriorates and refinancing risk heightens because of weak access to new funding. We could raise the rating if R&F improves its credit profile through strong sales, good profitability, and well-managed leverage, such that the ratio of total debt to EBITDA improves towards 5x on a sustain

able basis.

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